Introduction
Personal loan lenders assess an individual's ability to repay the loan by verifying their credit score. A credit score serves as a summary of one's credit history, total credit borrowed, how repayments were made, and many other factors.
These factors help lenders determine whether giving a personal loan to an individual would be a risky proposition or otherwise. Most personal loans are unsecured and the lenders have no other assets to rely on for recovery. This is the reason why credit score is considered the most important thing while giving a personal loan.
Often, we hear that one cannot get a personal loan even if one has a bad credit score. This may not be true in all cases. You can get a personal loan even with a bad credit score and here are some tips that you can use for the same.
Tips to get personal loan with low credit score
Provide proof that your income is sufficient to make timely EMI payments
If you have a salary increase or have an additional source of income, it can be easy to get a personal loan despite a bad credit score. This is because lenders will consider your application based on your income and ability to repay. If you can prove to the lender that your job and income are stable, they will grant you a personal loan, even if you have a poor credit score. However, be prepared to pay higher interest on loans that are borrowed with poor credit scores.
Reduce the amount of personal loan applied
When you look for a higher amount in a personal loan and your credit score is low, it indicates a higher risk for the lender. Lenders view these indicators as an indication of a possible default on repayment. On the other hand, if you apply for a lower personal loan amount, lenders will be comfortable giving a personal loan as it is far easier to repay the lower amount.
Apply with co-applicant or guarantor
If your credit score is low, you can get a personal loan by applying with a co-applicant or with a guarantor. It is important to note that the co-applicant or the guarantor should have the required documents to complete the required KYC formalities and also provide the signature as required. The main advantage here is that once the lender is sure about the source and stability of income of the co-applicant or guarantor, getting a personal loan becomes easy. The co-applicant or guarantor should also have a good credit score.
Check Your Credit Report Error
Chances are that sometimes there are some errors in your credit report. This mostly happens in cases where the latest information is not up to date as per your records. Without your knowledge such errors can have a serious impact on your credit score. Therefore, it is important to regularly verify your credit report and ensure that it has been corrected. Once your credit score gets better, you may have a better chance of getting a personal loan easily.
Request Lender for NA in Credit Report
The NA or NH tag on your credit report indicates the absence of any prior credit activities or in the last 36 months. This will mean that there will be no credit score printed with your name. Thus, you can talk about your credit inactivity with your lender. There is a possibility that the lender offers you a personal loan at a higher interest rate in such cases.
All the above measures will ensure that you can easily get a personal loan even if you have a bad credit score. However, it is important to have enough money for future repayment. If you do not do this, chances are that your credit score will be further affected. You can use the personal loan EMI calculator to understand how much upfront you need to pay and start planning your repayment. As a last option, you can assess whether any of your assets can be mortgaged to get a personal loan.
importance of credit score
Your credit score tells you how creditworthy you are. A good credit score is usually between 300 and 900. A score of 900 indicates the highest level of creditworthiness. The higher your credit score, the better the chances of your personal loan application being approved.
Your credit score is dependent on your repayment track record on all your existing loans and borrowings. Timely repayment of all loans like credit card bills, loan EMIs etc. will ensure that you maintain a high score. However, if you default on loan repayment, it will result in a lower score. Personal loan defaulters are usually rejected by lenders.
Eligibility for Personal Loan with Low Credit Score
Your credit score is an important part of your loan eligibility. Apart from this, many factors play a role in getting approval for your loan application. You can use the Personal Loan Eligibility Test to get a fair appraisal of the loan you can avail. It also gives you an idea of the EMI that you will need to pay. A moderately good credit score has a higher chance of getting a personal loan approved easily. In case of a low score, you may be eligible for the loan but the interest rates will be higher.
In case of low credit score, your best option for getting a personal loan is to get it from an NBFC. NBFCs have better flexibility when it comes to eligibility criteria as compared to banks. If you have a history of loan defaults, make sure you explain this to the lender. As long as you have a valid reason for it, such as a medical emergency, the lender will consider approving your loan at a reasonable interest rate.
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